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Negotiation and Inexperience

TL;DR: Having access to trusted advisors, and the time to consult with them, is essential for anyone negotiating terms with which they have very little experience. Don’t accept someone’s argument that you must negotiate important issues live. It’s simply untrue, and a tactic for gaining unfair leverage.

Background Reading:

A recurring theme of SHL posts is that entrepreneurs, particularly first-time entrepreneurs, need to be extremely mindful of the imbalance of experience between themselves and the many sophisticated, repeat players they’re going to be negotiating with as they build their companies. It’s obviously common for entrepreneurial personalities to be more comfortable (than most) with risk, and to go head-first into negotiations and activities without proper backup. But for really big, irreversible decisions, it will backfire, and others will happily use it against you.

One of the most overused phrases for getting naive negotiators to give in on issues they should push back on is “this is standard.” When you have no historical or market perspective – what’s normal, what’s fair, what are the risks, how will this play out in 5 years? – you can be easily manipulated into all kinds of bad outcomes. I’ve been at more than my fair share of board meetings or negotiations where someone at the table makes a completely biased, nonsensical claim that something is “standard,” at which point I’ve had to step in to set things straight, and gladly offer up data or a quick market survey.

There are two main things that I tell all companies to focus on in this regard:

  1. Have a group of experienced, trusted advisors that you can quickly communicate with on serious issues.
  2. Do not let yourself be bullied into a setting where your inexperience puts you at a substantial disadvantage.

Trusted Advisors

When I speak of trusted advisors, I’m not referring necessarily just to your Company’s “advisory board,” which serves a broader purpose of helping you on long-term strategic, business, and technological issues. I’m referring to people you can call or e-mail for specific, tactical guidance on more pressing matters; your “inner circle.” Seasoned entrepreneurs, mentors from accelerators, lawyers (who are independent from your lead VCs), and trustworthy angel investors often make up this group for most CEOs I work with. The most important thing is that they (i) have visibility into the broader market, to help you actually understand what is acceptable, and (ii) will be direct and honest with you when you most need them to.

Imbalanced Negotiation Settings

While it is far less common in the tech world than in other areas, you occasionally still encounter people (particularly VCs) who insist that the only appropriate way to “really” negotiate is live, and in person. And let me tell you: this is bullshit.

Of course, live discussion is important for communication and relationship-building; it has its place. But more often than not, attempts to force entrepreneurs and company executives to negotiate key issues live, or under a very tight deadline, is a tactic to gain unfair leverage from their inexperience. Of course the guy who’s done this type of deal 30 times wants you to agree to terms live, face to face, away from your set of advisors. It has zero to do with business norms. Plenty of high-stakes deals are negotiated asynchronously. 

How you push back and (respectfully) assert yourself in negotiations with other business parties will set the tone for your long-term relationship. If you allow them to force you into circumstances that favor them, they will do it indefinitely. There is nothing wrong with responding, diplomatically, that while you of course would love to grab beers and meet up in person for more casual matters, for real business, you expect time to consult with advisors.

If you’re working with people whom you should want to build long-term relationships with, they will respect your request.  In fact, I’ve known some great VCs and other business people who are very upfront about the experience imbalance with new entrepreneurs, and insist that companies work closely with key advisors.  Those are people playing a long game, and who know that their reputation in the market matters more than short-term opportunism.

If the person you’re negotiating with rejects your request, and dictates to you the medium of negotiation, then at a minimum you’ve gained some key information on what the relationship is going to really look like if you choose to move forward.

Commercial / Tech Transactions Lawyers

TL;DR: Apart from early-stage specialized corporate lawyers (startup lawyers), there’s a second kind of lawyer that almost every early startup needs: a commercial/tech transactions lawyer.

Background Reading:

Imagine you run into a doctor who says he can (i) perform heart surgeries, (ii) treat cancer, (iii) treat your asthma, and (iv) provide pregnancy care, on his own, and all at a lower than market cost. Is your first reaction “wow, this guy is an incredibly affordable genius!” ? A cardiologist, oncologist, pulmonologist, and OB/GYN all in one!

Probably not.

One of the first points I make to young tech entrepreneurs about how to source legal counsel is that the statement “I need a lawyer” is almost completely useless without specifying what kind (specialty) of lawyer. The complexity of the legal issues that even young emerging companies deal with is simply too high to entrust all of them to a single “generalist” claiming to be a jack of all trades. This is not a coffee shop, or a bakery. The stakes, and potential liabilities, are much higher.

OK, you might say. I’m a startup, so I need a startup lawyer. Well, that’s an improvement, but what exactly is a “startup lawyer”?

In my experience, the correct definition of a “startup lawyer” is a corporate lawyer with a strong specialization in early-stage emerging companies and venture capital/angel financings. Very different from an M&A Lawyer, or a corporate lawyer who handles middle market or public company work. Startup lawyers typically serve as GC (General Counsel) for early-stage startups, which requires them to have a workable understanding of tax law, securities law, commercial issues, IP, and labor/employment legal issues.  They’re not experts in those areas (corporate law is their specialty), but they’ve seen those issues enough to cover the basics, while also knowing when to rope in deeper expertise. Your corporate/startup lawyer should serve as the quarterback of your general legal team.

For most startups we see, probably 50-75% of Pre-Series A legal needs are covered by these startup-specialized corporate lawyers: formation, financing, hiring and firing, equity compensation, etc. Small amounts of patent or trademark work may be needed by appropriate specialists, but that’s a minority of cases pre-Series A.  But there’s a second kind of lawyer – who isn’t a “startup lawyer” – that virtually all of our early clients end up needing, and that all founders need to be aware of in sourcing their own counsel: commercial, or sometimes called “tech transactions” lawyers.

Startup/corporate lawyers typically handle the more ‘internal’ issues of a company and its stakeholders: relating to the company’s founders, its employees/service providers, and stockholders.  Commercial or Tech Transactions (let’s use C/T) lawyers, in contrast, typically manage legal issues and contracts relating to a company’s customers/users and potential commercial partners. A good 25-50% of pre-Series A legal needs will often get handled by a C/T lawyer. Examples of C/T Lawyer work:

  • License Agreements (Inbound and Outbound)
  • OEM, Reseller / Distribution Agreements
  • Terms of Service and Privacy Policies (which may also require Data/Privacy Lawyers, but usually not)
  • EULAs, API / SDK terms
  • Technology Transfer Agreements
  • Manufacturing / Supply Agreements

The nature of these kinds of agreements is very different from the kind of work a classic “startup lawyer” does, and while most solid corporate lawyers probably could wing a simple version of a tech transactions document, I am deeply skeptical of a lawyer who claims to be able to handle both all of a company’s corporate needs and their commercial/tech transactions needs for a serious amount of time. In the very early days it *may* work, but even with a small level of scale it’ll start to look a lot like the “genius” doctor mentioned above. The most dangerous (and, in the long run, expensive) type of lawyer is the one who doesn’t admit what he/she doesn’t know, but incentives to maximize personal revenue often lead lawyers to exaggerate their abilities.

So, in short: if you’re building a tech startup, you don’t just need “a lawyer.” You need specialists. And a true startup lawyer, even a very good one, is very rarely enough. Ensure you have access to a solid commercial/tech transactions lawyer (reputable startup lawyers work with them). If you don’t, you’ll eventually regret it.

Founder Burnout and Long-Distance Thinking

TL;DR: “Life ain’t a track meet; it’s a marathon.” – Ice Cube

Related Reading: Burnout, Depression, and Suicide

I’m prone to deep thinking about life. It’s why I quit the honors program in a great business school within weeks of entering college, and switched to Philosophy (adding Economics later). Best career decision of my life. No offense to the business school grads out there.

I’ve always had this feeling that people devote far too much brainpower toward things that ultimately amount to nonsense, and yet things that are infinitely consequential – like what you want to do in life, where and how you want to live, whom and when to marry, whether and when to have kids – people seem to either follow a script, or just let their surrounding culture/peers push them in the direction of the current zeitgeist. And the truth is, the zeitgeist doesn’t give a shit about you. Slow down, and think it through. You get one shot.

And instead of asking your friends, ask people who’ve gone the distance. It’s well documented culturally / sociologically that spending all of your time with people your own age leads to all kind of mental dysfunctions and myopic thinking. The only way to get real perspective is to listen to other perspectives, and that means age / generational diversity.

A lot of the advice out there on founder burnout amounts to a kind of checklist on health and wellness. Let’s go ahead and get that checklist out of the way:

  • Sleep – Don’t delude yourself into thinking that pulling all-nighters and not hitting your 7/8 hour a day quota will make you more productive. It won’t. The data is clear.
  • Exercise – Same. Go for a run. Lift some weights. It’s not time wasted. Again, it makes you more productive.
  • Eat well – Eat shit, and you’ll feel like shit. Read up on carbohydrates, insulin, inflammation, and energy. You’ll learn some things.
  • Delegate – Build systems, and then hand those systems over to other people. If you can’t figure out a way to scale your skills, you will fail at life and at work.

But in my opinion, and from what I’ve observed among certain entrepreneurs, there’s a deeper, longer-term issue at play regarding founder burnout (and life burnout in general) than just getting overworked and not taking care of your body. The best way I can explain it is using some old school philosophy concepts: higher and lower pleasures.

Speaking very generally, lower pleasures require constant replenishment, because the feeling they generate just doesn’t last. They’re the “simple carbs” of life. Sex, drugs, and rock n’ roll are the typical go-to’s when someone wants to explain lower pleasures, but lots of cleaner forms of activities in life fit this category. Once they’re over, all you’re left with is a memory, and a desire for another one.

In contrast, higher pleasures have a kind of lasting effect. They have staying power and can bring satisfaction to life even when you’re not at the moment “doing” anything about them. Long-term friendships, love, family, and a sense of meaningful (not just financial) achievement are all classic examples of higher pleasures. They can be entertaining (or the opposite) and take up your time, but that time is a kind of investment toward building something that carries you forward in life, and is still there when you’re in your 40s, 50s, 60s, and later. David Brooks wrote a good op-ed called The Moral Bucket List that is worth reading.

The deeper kind of life burnout that goes beyond health/wellness results from years, or even decades, of failing to build durable “higher” pleasures into your life. You can ensure that you’ve slept enough, exercised, eat well, and have built a great management team, and yet at 40, 45, 50, find yourself sipping martinis on Christmas Eve, alone, or with someone who means absolutely nothing to you. That end-result really burns, because there’s no checklist for resolving it. Fail to build/invest into things in life that last and will help you really go the distance, and it can eat you alive in the long run.

When asked by young law students about how to vet law firms for employment, I’ve always said to look at the older partners, and watch/listen very closely. Look for divorces, kids in therapy, anger management issues, drug addiction, alcoholism. In the legal profession, and in all areas full of high performance personalities – including entrepreneurs – they’re everywhere. People who treated life like it’s a track meet – narrow your vision and run as fast as you can – when it’s really a much longer, much more intricate marathon.  Rock stars in their earlier years, but they failed to go the distance.

So my personal advice to ambitious entrepreneurs about preventing burnout long-term is, yes, sleep, exercise, eat well, and delegate, but also build a real life, not just a company. Emphasis on the word build; as in, activities that contribute to relationships and things that will be there tomorrow, and next year, and a decade later, when you’re a different person, with different priorities. Look ahead, and plan for the distance.  Most of the people around you telling you to just “keep hustling” care more about your stock than they do about you personally, or are themselves ignoring how long the marathon is.

Look for mentors who’ve built their own companies, but while maintaining a sense of balance (even if loosely defined).  Even if zen-like balance isn’t really achievable, the simple act of trying hard to achieve it will ensure you land somewhere sustainable. Like a speed limit, you know you’ll break it, but it’ll still help pace you.  

Think things through, and spend some of your time really building a life, apart from your company. The building may take longer than just narrowing your goals and running as fast as you can, but the end-result will be something much more durable.